New “markets for judgment” like the Creative Destruction Lab are bridging critical gaps between scientific breakthroughs and commercial applications.
In 2012, when the Creative Destruction Lab (CDL) at the University of Toronto’s Rotman School of Management was launched, the audacious target of this seed-stage program for massively scalable, science-based companies was $50 million in equity creation in five years. In 2017, CDL companies surpassed $790 million in equity creation. Such is the power of a market for judgment.
A market for judgment is a nexus between science and technology. By science, I mean the kind of knowledge that is produced in academic institutions and research labs. By technology, I mean the commercial application of that knowledge. A market for judgment is a place, like CDL, where the producers of knowledge meet and mingle with businesspeople and investors.
Markets for judgment are necessary and valuable because science and technology are mismatched in several ways. They are mismatched in geographic terms: Science is concentrated in universities, which are located all over the world; technology aggregates in a few places, such as California’s Silicon Valley and Cambridge, Massachusetts, in the U.S. The landscape of science is the gently undulating Great Plains whereas the landscape of technology spikes like Mount Olympus.
The distribution of scientific and technological talent is also mismatched. I think that may be because of the antithetical nature of the two jobs. Scientists are supposed to go down fruitless paths; it’s part of their process. Technologists are supposed to go down fruitful paths; in their process, fruitless paths are decidedly unwelcome and potentially destructive.
In short, although science and technology are supposed to go hand in hand, they usually can’t get that close. CDL was designed to determine if we could bring science and technology closer together by building a market for judgment.
The Case for Markets for Judgment
Typically, entrepreneurs who are seeking to commercialize their hard-won scientific knowledge have little or no business experience. To get started, they need advice. What customers or market verticals should they target? Should they license their knowledge and, if so, to whom? Or should they go it alone? What sort of people should they hire? When and where should they seek funding? There are a host of such questions, and finding even one person capable of answering them, let alone a group whose diverse views would allow scientists to figure out the right answers for their ventures, is unlikely.
As a result, many entrepreneurial scientists head to technology centers, such as Silicon Valley, to get the answers they need. But even there, it can be very tough to gain access to a network of advisors (and investors).
But what if we could give science-based entrepreneurs access to markets for judgment, perhaps at their own universities or other nearby universities? Such markets would bring them together with successful entrepreneurs who had already brought companies to scale.
This scenario might start with a one-day meet-and-greet. But to create a robust market for judgment, there would need to be continued interaction. The would-be entrepreneurs would need to get to know their already successful counterparts and vice versa. This won’t happen with a three-month boot camp à la Y Combinator. The leaders of new ventures, mentors, and investors tell us that they need regular interaction over a year and perhaps beyond to get a feel for a business and its true potential. That means getting them all together in the right place at the right time, matching them up appropriately, and providing the foundation for a long-term relationship. If a market for judgment were a marriage market, it would need to be more like a religious institution than speed dating.
Research suggests that the returns on creating such a venue for long-term relationships can be high. Studies have shown that family relationships — one common way that entrepreneurs access judgment in the absence of a market — drive invention and entrepreneurship. We also know that colocating science and technology talent in a region, such as Silicon Valley, spurs entrepreneurship. This supports the idea that market creation can unlock the commercial potential of scientific research that otherwise might lie dormant.
Joshua S. Gans – Read this great article on MIT Sloan Management